5 PREDICTIONS FOR ENERGY STORAGE

15 years ago, when battery energy storage systems (BESS) were confined to small warehouse batteries and insurers were learning the risks in real-time, it might have seemed wildly optimistic for the energy storage market to add 25 GW of grid-scale storage in 2023. At that point in time, the market was beginning to disappear in response to there being no volume of business.

Today, growth in this sector is fast, and traditional renewable energy insurance markets are increasingly looking to underwrite BESS projects. Integral to their success, though, is keeping pace with the sector’s transformation. In this article, we highlight 5 key trends that will be at the forefront of people’s minds in the BESS space.
 
1. Accumulating field data will oversee steady improvement in favourable insurance terms

As the nascent BESS market continues to develop, insurers will be focused on one thing above all: field data. While insurers are aware of what the manufacturer guidance is for their batteries, there remain risks which we will only have a full understanding of once there is enough field data to process. These factors include:

- The performance of BESS projects over time 
- The frequency of thermal runaway events
- The optimum spacing distance for battery containers
- The lifespan of batteries before degradation
- Contingency planning to make revenue and meet contractual requirements if containers are lost
- The relationship between co-located systems – can the BESS operate independently of a solar or wind farm?

As data trickles in from the field, from new companies emerging as specialist developers, manufacturer’s, EPC contractors and even from insurers too, we expect to see a maturity in the market with bespoke products in line with the steady improvement of the industry. This is with the caveat that an industry-wide shock loss has the potential to inject volatility into this progress.

2. Insurance markets will receive more detailed project plans from Owners and Brokers

As the volume of projects increases, Owners and Brokers ought to be able to present detailed risk management information to insurance markets. In recent years, however, a number of combined solar and BESS projects have continued to present a layout document with insufficient BESS details, leaving underwriters to draw their own conclusions about critical factors like thermal runaway propagation. This can understate the careful consideration that goes into successful projects.  

In the next stage of development for this segment, we anticipate that owners will provide clearer plans for their projects and risk management practices. Details about container spacing and rationale, detection and suppression systems, replacement parts and timeframes, flood prevention, emergency response plans, and vendor qualifications will be conveyed to markets. Owners may also host site visits to improve their underwriters’ understanding of the setting, equipment, construction, and operations.  
Eventually, we may see manufacturers reach out to stakeholders like insurers.  

Collectively, this will lead to more efficient risk management, underwriting, and claims processes for all parties. 
 
3. As BESS projects get further into their life cycle, owner operators will have to find augmentation solutions

We may not have a detailed timeline on battery degradation yet, but what we do know is that it will happen, and this will present developers with an important challenge as their projects mature. 

Right now, with the impetus on getting through testing and commissioning to get a BESS project up and running, long-term augmentation strategies can easily be overlooked. Developers do not, however, want to be in a position where their projects are unable to produce enough power to fulfil their requirements after a certain period of time.

To prevent this, developers will need to consider either building augmentation into the original blueprint – in other words, to overbuild their system from the outset so that it remains over the required threshold even as it degrades – or setting aside finances to buy additional parts and newer batteries down the line. The latter option may involve more risk, as we cannot predict the compatibility of future batteries with current systems.

Something that will complicate these decisions further will be the question of spacing. Given the costs involved in leasing the land and the materials that go into fencing, grading, paving, and spacing it all out for the project, developers will need to factor in extra space in case they need additional batteries in the future.

4. The supply chain will be tested as rollout gathers pace and more losses arise

Fortunately, not many have suffered large losses that would require lots of replacement parts so far with BESS. As such, supply chains have been spared a sudden flux in demand that might test its efficiency.

In spite of this, we can speculate that it would take a reasonable amount of time to replace batteries and conservative loss estimates should be built into project plans. This is not only because the marketplace has been untested by large losses so far, but also because established manufacturers are experiencing extreme demand from new clients as the rollout builds momentum.

5. The UK is primed to become a future powerhouse of BESS

The regulatory environment in the UK has opened wide the doors for BESS installations and it leads Europe in grid scale battery deployment with 2.1GW installed and a pipeline exceeding 57GW. Last year, £32.9m of government funding was poured into 5 BESS projects as part of the Energy Security Strategy laid out previously.

The big challenge in the UK market is using space and land strategically so that batteries are as close to the grid as possible to avoid transmission losses. Nonetheless, the use of remuneration models for fast frequency response that indemnify batteries when reactive power is provided to the grid has underlined the value of BESS in stabilising the grid. The popularity of these systems as a result means that we can expect the UK to become a powerhouse in the medium- to long-term.

By Landis Knorr, Senior Underwriter, & Mohammed Zeeshan, Underwriter